Geraldine Farache- Geraldine Farache
A Complete Guide to PTO, Company Policies, and Employee Rights
Updated: Sep 7
You’ve been working hard all year without a break. You’d like to take time off but December is your busiest month.
What will happen to your vacation time? Can an employer take away earned PTO?
It depends.
In this blog we’ll discuss earned PTO, various company policies, and the laws that protect employee rights to PTO.
Table of Contents
How Do Vacation Accruals and Caps Work?
Whether you’re starting a new job or have been with your company for a while, you might not understand or even know about the vacation policies in effect.
Let’s face it, sometimes they’re just confusing. Adding up the hours worked to figure out how many days you get off? What a pain!
However, it’s important to know if you’ve earned any PTO (paid time off) and when you can use it. This is where accruals and caps come in.
Let’s start with accruals. Most companies are free to choose their own policies for PTO accrual.
Accruals
You may work for a company that requires you to pass a probationary period, such as the first 90 days, before you can begin accruing time off. Some companies may allow you to begin accruing vacation time immediately but might put a restriction on when you can use that time.
You may earn time based on hours worked or perhaps your company allows you to accrue one paid day off for each month worked. Below, we will detail the most common accrual policies and show you exactly how they work.
But, what about caps?
Caps
In some cases, it’s legal for companies to place a cap on how much PTO employees can accrue. They might do this to encourage their employees to use vacation time regularly, or it can be done to ensure PTO is not carried over. Each policy is different.
Use-it-or-lose-it policies do not allow employees to carry over or cash out unused vacation days — meaning employees forfeit any unused vacation time.
In some states, “Use-it-or-lose-it” policies are illegal. But, in some of those states, if vacation time isn’t used then it must be cashed out when the employee leaves the company.
Because of these laws, companies in those states often implement some sort of cap to determine how much vacation time can be accrued. Some states specify an acceptable ratio, while others allow for any cap that is deemed “reasonable”.
We’ve provided a handy list below to help you understand what’s legal in your state, but you can always contact your state labor department for clarification on any vacation policy.
What Happens if You Don’t Use Your PTO?
This is dependent on the specific policies implemented by your employer and the laws in your state.
For example, with a use-it-or-lose-it policy, you are technically forfeiting your PTO if you don’t use it by the end of the term.
But with a “carryover with a cap” policy, you may be able to carry over some PTO, but it will be capped, meaning you technically lose some of it.
Knowing your company’s policies and your state labor laws can help to avoid the unwanted disappointment of losing valuable PTO.
Can an Employer Take Away Earned PTO?
So, what’s the deal? Can an employer take away accrued vacation time? Technically, an employer can only take away earned PTO if they have a legal policy that allows it.
At Sorbet, we want to promote healthier employer/employee relationships by offering a PTO solution that benefits everyone and normalizes taking time off from work.
Unused PTO is a loss for everyone. Having the option to cash out PTO results in greater job satisfaction and a better work-life balance for employees while reducing PTO liability for employers.
For more information, contact Sorbet today. We want to help.
Understanding the 3 Most Common Company Policies on PTO
#1: Use-it-Or-Lose-it
Use-it-or-lose-it is probably one of the most restrictive PTO policies for employees. The policy states that employees are obligated to use their vacation time by a predetermined date or risk losing it. No cash outs or rollovers are allowed with use-it-or-lose-it policies.
For employers, the payout liability is reduced, but employee relations may suffer. Even if the policy is clearly conveyed and employees are aware of when they need to use their PTO, it’s not always possible for every employee. This can cause frustration among the workforce.
It’s also important to note that use-it-or-lose-it policies are illegal in some states.
Can an Employer Take Away Your PTO With This Policy?
While some states expressly prohibit use-it-or-lose-it policies, employers can take away earned PTO where this policy is allowed.
If you don’t use your PTO by a certain time, it simply ceases to exist with no cash payout and no possibility of using it at a later date.
So, if your company has a use-it-or-lose-it policy, you should know exactly when you need to use your PTO before it expires.
#2: Carry Over With a Cap
Carryover caps limit how much PTO can carry over from one year to the next. Also referred to as an accrual cap, carry over with a cap policies allow employers to halt PTO when an employee’s total time off has reached the predetermined cap, as per the policy.
This is a popular way for employers to manage PTO in states where the use-it-or-lose-it policies are illegal.
The way this policy works is to encourage employees to use at least some of their vacation time or risk losing it when they reach their cap.
Can an Employer Take Away Your PTO With This Policy?
With a carry-over with a cap policy, employees can technically lose some of their PTO.
For example, Heather’s employer allows her to accrue 10 paid vacation days per year, with a rollover cap of 15. That means that if Heather does not use 5 of those 10 days within that year, she risks losing them because her maximum allowance is 15 days (5 days carried over plus 10 days earned within the next year).
This might work well for employees who want to work more one year so they can take more time off the following year.
#3: Unlimited PTO
Unlimited PTO policies sound like a dream come true for some employees. Popular among tech companies, unlimited PTO is used as a recruiting tool, but it’s questionable whether the policy actually benefits employees.
The truth is, without company guidelines, employees actually take less time off with an unlimited policy than they do with a traditional PTO policy.
Take Sanjeev, for example. Sanjeev just started working as a programmer at a tech startup. He was offered a high salary with bonuses and unlimited PTO. Great, right?
Not really. What Sanjeev quickly realized is that most of his coworkers were experiencing burnout because they took very little time off. Sanjeev didn’t feel comfortable being the only programmer to utilize the unlimited PTO, so he also started to feel burnt out.
Formalized PTO structure and guidelines give employees limits they can work within, without the guilt of wondering if they’re taking advantage of an unlimited PTO policy.
Can an Employer Take Away Your PTO With This Policy?
Unlimited PTO policies come with a catch. They don’t accrue. So what does this mean?
If your employer offers unlimited PTO and then you quit or leave the company, the employer is not obligated to pay you for your unused time.
This means that you effectively lose money when compared to PTO policies that payout for unused vacation or sick days.
Is PTO Protected By Law?
Can a company take away vacation time by law in the U.S.? It depends on the state where you are employed.
While most companies offer formal PTO policies for vacation time, sick days, etc. many states do not force employers to pay out unused accrual or allow employees to roll it over.
Below, we outline which states have laws against use-it-or-lose-it policies and which states require unused PTO to be paid out upon termination of employment.
States That Do NOT Allow Use-it-Or-Lose-it PTO Policies
These states prohibit employers from implementing a use-it-or-lose-it policy:
California
Colorado
Montana
Nebraska
These are the states that DO allow employers to implement use-it-or-lose-it policies:
Alabama
Alaska
Arizona
Arkansas
Illinois
Indiana
Kansas
Louisiana
Maine
Massachusetts
New Hampshire
North Carolina
North Dakota
Texas
Utah
Virginia
Wyoming
All other states have not addressed use-it-or-lose-it policies within their labor laws.
States That Require Vacation Payout Upon Termination
Many employees leave their employment with unused PTO. Some states require that all unused PTO be paid out by the employer upon termination of the employment contract.
These states are as follows:
California
Colorado
Illinois
Indiana
Louisiana
Massachusetts
Nebraska
North Dakota
Rhode Island
If you are uncertain about your company’s PTO policies, always check with your state’s labor laws.
Sorbet: Providing Employers and Employees With a Win-Win PTO Solution
At Sorbet, we believe in normalizing taking time off. We want to encourage employees to feel confident about spending valuable time away from work, without feeling guilty about it.
Unused PTO isn’t just detrimental to employees’ wellbeing, it’s also a liability for employers.
However, when employers give their employees the option to cash out unused PTO, as opposed to losing it completely, a tired and frustrated employee suddenly feels valued and becomes more productive as a result.
Sorbet solves ongoing PTO issues by transforming outdated, antiquated systems into a winning solution by:
Lowering accrued liabilities and saving companies money
Allowing employees to instantly exchange unused PTO for cash instead of letting it go to waste
Offering ideal pre-approved PTO dates for employees
If your current PTO system isn’t cutting it, click here and schedule your free Sorbet demo today.